The Kyoto Protocol gives Annex 1 countries considerable flexibility in the choice of domestic policies to meet their emissions commitments. Possible climate policies include carbon/energy taxes, subsidies, energy efficiency standards, eco-labels, and government procurement policies. In order to meet their targets with minimum adverse effects on their economies, Annex 1 governments with differentiated legal and political systems are highly likely to pursue these policies that may have the potential to bring them into conflict with their WTO obligations. This paper explores the potential interaction between these domestic climate policies and WTO rules. It argues that their potential conflicts can be avoided or at least minimized if WTO rules are carefully scrutinized, and efforts are made early on to ensure that the proposed climate policies comply with them. It suggests an early process of pursuing consultations between WTO members and the Parties to the Climate Change Convention and points to the need of further exploring ways to enhance synergies between the trade and climate regimes.

The Kyoto Protocol gives Annex 1 countries considerable flexibility in the choice of domestic policies to meet their emissions commitments. Possible climate policies include carbon/energy taxes, subsidies, energy efficiency standards, eco-labels, and government procurement policies. In order to meet their targets with minimum adverse effects on their economies, Annex 1 governments with differentiated legal and political systems are highly likely to pursue these policies that may have the potential to bring them into conflict with their WTO obligations. This paper explores the potential interaction between these domestic climate policies and WTO rules. It argues that their potential conflicts can be avoided or at least minimized if WTO rules are carefully scrutinized, and efforts are made early on to ensure that the proposed climate policies comply with them. It suggests an early process of pursuing consultations between WTO members and the Parties to the Climate Change Convention and points to the need of further exploring ways to enhance synergies between the trade and climate regimes.